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File#: 23-119 Agenda Date: 02/15/2023
Version: 1 Item #: 2
Report presenting Fiscal Year (FY) 2022-23 Mid-Year Financial Report as of December 31, 2022, and proposed budget amendments for FY 2022-23 City Operating and Capital Improvement Program (CIP) Budgets (Karen Chang, Director of Finance)
RECOMMENDATION
Staff requests that the Budget Standing Subcommittee of the City of South San Francisco (“City”) review the FY 2022-23 Mid-Year Financial Report and the proposed budget amendments for FY 2022-23; and refer the items to the February 22, 2023 City Council meeting for full Council acceptance.
BACKGROUND/DISCUSSION
City Council approved the FY 2022-23 General, Enterprise and Internal Service Fund budgets on June 22, 2022. The approved budgets feature the annual expenditure and resource allocation plan that guide the implementation of City Council budget policies and priorities. The budget provides funding direction for the broad range of services that meet the needs of the community in accordance with City Council policy.
This financial review provides the mid-year budget update to the City Council for the current fiscal year. Analysis of the revenues collected and all expenditures through December 31, 2022 measures operational adherence to the budgetary allocation plan.
The adjusted budget incorporates current estimates for revenue and expenditure appropriations for all funds as of December 31, 2022. The Mid-Year Financial Report as of December 31, 2022 provides comparisons to the prior year and focuses on variances from the revenue and expenditure plans and allocations contemplated in the budget.
I. Current Fiscal Year (FY 2022-23) Update
A. General Fund Revenues – 2
nd Quarter
B. General Fund Expenditures – 2
nd Quarter
C. Additional General Fund Appropriations Request
D. Additional Non-General Fund Appropriations Request
E. Capital Improvement Plan (CIP)
City of South San Francisco
Legislation Text
P.O. Box 711
(City Hall, 400 Grand Avenue)
South San Francisco, CA
Attachment 1
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F. American Rescue Plan Act (ARPA) Summary
II. Reserves Overview & Considerations
I. CURRENT FISCAL YEAR (FY2022-23) UPDATE
The General Fund finances the operations of the City and pays for basic municipal services. The adjusted FY 2022-23 General Fund budget projects revenues totaling $126.2 million and expenditures totaling $137.0 million, including purchase order encumbrances from FY 2021-22, approved carryover amounts, and several City Council approved appropriation amendments prior to December 2022.
The following sections show the revenue and expenditure results as of December 31, 2022.
A. General Fund Revenues – 2
nd Quarter
The following table shows actual revenues as of December 31, 2022 with a comparative view of where the City’s revenues were at the same time last year (December 31, 2021):
Table 1: FY 2021-22 vs. FY 2022-23 Revenues as of December 31 As shown in the above table, projected revenue for FY 2022-23 is $126.2 million – approximately $7.1 million more than the FY2021-22 budget. Actual revenue collections for the two quarters ended December 31, 2022 exceed prior year by $18.5 million and represent almost 54% of the projected revenue for the entire fiscal year.
The following highlights the recommended adjustments to the FY2022-23 revenue budget.
1. Property Tax. The real estate market remains strong as homeowners continue to make City of South San Francisco Page 3 of 12
improvements on their existing homes and new construction are added to the tax roll.
Property tax comprises almost 40% of the General Fund’s total revenue. Property tax is allocated to the City in two large installments (December and April). Our records show property tax collections have reached 58.2% of our projection as of December 31, 2022.
Based on the available information provided by the county, staff recommends a $2 million increase to the projections.
2. Sales Tax. There is about a two-month lag in the collection of sales tax receipts. Just like the 2nd quarter of FY 2021-22, the city has received approximately one-third of the projected sales tax revenue for the entire fiscal year. Our initial forecast on sales tax is wellaligned with the latest estimates provide by our sales tax consultant in January. Staff recommends a $1.4 million increase to our projections.
3. Transient Occupancy Tax (TOT). This revenue stream, most impacted by the pandemicimposed travel restrictions, has demonstrated strong recovery to the pre-pandemic level.
As of December 31, 2022, the city has recorded a TOT revenue collection of $7.4 million.
This amount represents $2.9 million or 64% more than the FY 2021-22 2nd quarter yearto-date collection and has exceeded the same quarter collection for the two fiscal years prior to the pandemic [$6.2 million for FY 2017-18 and $6.8 million for FY 2018-19].
Staff remains optimistic about the continuous growth of this revenue stream when business travel begins to accelerate. As such staff recommends a $3 million increase in the projections.
4. Other Tax. Other tax includes real property transfer tax, business license and commercial parking tax. 2nd quarter year-to-date collection of commercial parking tax and business license tax exceeds prior year’s amount by $660k and $106k respectively. Revenue streams from new business startups and traffic to the City continues to strengthen since the decline in FY 2020-21. Staff recommends a $800k increase in our projections.
5. Licenses & Permits. Revenue from building and electric has demonstrated significant growth. Collection for the 2nd quarter year-to-date exceeds the prior year’s amount by $4.8 million, reaching $11.5 million (71% of budget). This has surpassed 2nd quarter year-todate collection for the two fiscal years prior to the pandemic [$7 million for FY 2017-18 and $7.5 million for FY 2018-19]. Staff recommends a $3.9 million increase in our projections.
6. Service Charges. This revenue stream includes fees charges by various departments for services provided to the public and has been negatively affected by the pandemic. Total collection for 2nd quarter year-to-date exceeds prior year’s amount by $440k. This is primarily due to a significant increase in fees collected by the child care program. Overall, the actual revenue collection is within our expectations. However, staff recommends a City of South San Francisco Page 4 of 12
$584k decrease in our projections as Planning Division receipts are below initial expectations.
7. Intergovernmental. Staff recommends a $800k decrease in our projections as the city has received less than expected grant and program reimbursement from other governmental entities.
8. Transfer In. Staff recommends a $694k increase in Transfers In, from the Infrastructure Reserve Fund ($294k), the Developer Deposit Fund ($308k) and the Public Safety Impact Fee Fund ($92k).
If approved by Council, the above changes would result in increasing the overall revenue budget for FY 2022-23 by $10.4 million from $126.2 million to $136.6 million.
B. General Fund Expenditures – 2
nd Quarter
The following table shows the actual expenditures by Department that have been recorded through December 31, 2022:
Table 2: FY 2021-22 vs. FY 2022-23 Expenditures as of December 31 City of South San Francisco Page 5 of 12
* Non-General Fund; budgeted as internal service fund in Fund 785.
The city is breaking even in terms of revenue and expenditures as of December 31, 2022, with expenditures exceeding revenues collected by $120k.
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C. ADDITIONAL GENERAL FUND APPROPRIATIONS REQUEST
The following are additional General Fund expenditure appropriations requests totaling $2,956,000:
1. City Manager’s Office $45,000
• Survey for BNGC Property- $15,000
• Antoinette Lane Name Change- $30,000
2. Non-Expense Department $200,000
• Adjustment to the benefit fund 783
3. Police Department $0
• 1.0 FTE Police Officer. Additional headcount only. Two-year term assignment funded by the County with no fiscal impact in FY2022-23.
4. Public Works $1,039,000
Payroll (position requests):
• 1.0 FTE Engineer- Senior (M340)- $53,000
• 1.0 FTE Management Analyst I (M570)- $36,000
Supplies and Services Request
• Professional services increase cost of consultant fees- $950,000
5. Non-Departmental $608,000
• Additional Discretionary Payment (ADP) for CALPERS Unfunded Accrued Liability (UAL)
6. Library $12,000
The requested positions will likely be recruited mid-May to June. The position costs are calculated at 20 hours per week for 6 weeks.
• 0.06 FTE Library Assistant II - Hourly (X225)- $5,000 • 0.06 FTE Library Clerk - Hourly (X235)- $3,000
• 0.06 FTE Office Specialist- Hourly (X235)- $4,000
7. Parks and Recreation Department (P&R) $932,000
Requests for additional $556,000 payroll cost and $377,000 in miscellaneous supplies and services. Breakdown as follows:
Payroll (position requests):
• 1.0 FTE Management Analyst II - $53,000
• 2.0 FTE Recreation Leader III- Hourly (X370)- $27,000 City of South San Francisco Page 7 of 12
• 3.0 FTE Recreation Instructor – Hourly (X350)- $51,000 • 0.5 FTE Recreation Leader III - Hourly (X370)- $7,000 • 1.0 FTE Park Maintenance Worker (A250)- $32,000
• 1.3 FTE Park Maintenance Worker - Hourly (X300)- $113,000 • 1.0 FTE Recreation & Community Services Program Coord (M530)- $70,000 • 0.18 FTE Recreation Leader III - Hourly (X370)- $10,000 • 0.41 FTE Recreation Leader III (A620)- $20,000
• 2.0 FTE Building Maintenance Custodian - Senior (A320)- $61,000 • 4.0 FTE Building Maintenance Custodian (A410)- $111,000 Supplies and Services Requests:
• Corp Yard HVAC Unit- $25,000
• Upgrade MERV 13 HVAC, Miscellaneous City buildings-$80,000 • Police Station Bird Mitigation- $40,000
• Repair MSB Fire Sprinkler Deficiencies-$41,000
• New Pool pump- $11,000
• SF Opera Pop-up Series at OMP- $30,000
• Consulting Services for Measure DD Revamp- $150,000
8. Capital Improvement Fund (CIP) – see section E. $120,000 • Francisco Terrace Flood Wall project (sd2201)
The ongoing impact of the mid-year requests beyond FY2022-23 have been estimated to be an additional $2.7 million in payroll and $1 million for supplies and services.
D. ADDITIONAL NON-GENERAL FUND APPROPRIATIONS REQUEST
The following are the additional non-General Fund expenditure appropriations requests totaling $2,011,000 from various sources.
1. Common Greens (Fund 231) $1,000
• P&R- Park Maintenance Worker- Hourly (budget adjust)
2. Oyster Point CFD Special Tax B (Fund 236) $71,000
• P&R- Oyster Point Maintenance Supplies- $20,000
• P&R- Oyster Point Water Cost Adjustment- $51,000
3. Developer Deposits (Fund 270) $308,000
• Fire- Rescue boat
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4. Public Safety Impact Fee (Fund 821) $92,000
• Fire – Rescue boat reserve
5. Infrastructure Reserves (Fund 513) $294,000
• P&R- OMP Ballfield restroom refurbishing.
• P&R- OMP Tennis Court restroom refurbishing
• P&R- OMP Basketball restroom refurbishing
• P&R- Repaving tennis courts
6. Sewer Enterprise (Fund 710) $875,000
• WQCP- Chemicals increase cost- $275,000
• WQCP- SSF Scavenger SB1383 organics mandate- $600,000
7. Equipment Replacement (Fund 784) $370,000
• Public Works- add sales tax to vehicle purchase budget from FY22-2023 E. CAPITAL IMPROVEMENT PLAN (CIP)
The following are the additional CIP project appropriation requests with their corresponding funding sources, amounting to $4,240,000:
1. Utah & Harbor Intersection Improvements (Existing project tr2101) $2,500,000 Funding Source: East of 101 Traffic Impact Fees
Funding request is for the construction phase of this project to create traffic improvements on Harbor Way and Utah Ave.
2. Sea Level Rise Study and Planning at WQCP (Existing project ss1802) $1,360,000 Funding Source: Sewer Fund
A cost sharing agreement with the United States Army Corps of engineers (USACE) is to be executed in summer 2023. These additional funds are required in readiness to move forward with USACE.
3. CDBG Curb Ramp Replacement (New project) $250,000
Funding Source: Infrastructure Reserves
These funds are requested to complement existing CDBG funds earmarked for this project.
The funds will pay for design, construction, construction management and inspection services.
4. Survey Monument (Existing project st2002) $125,000
Funding Source: Infrastructure Reserves
Additional funds needed to complete the survey monument investigation, survey, calculations, staking and recording of replacement monuments that are missing or never City of South San Francisco Page 9 of 12
installed.
5. Misc. Traffic Improvements FY2022-23 (Existing project tr2301) $100,000 Funding Source: Infrastructure Reserves
Additional funding is required for studies, Traffic Advisory Committee (TAC) reviews and implementation costs to meet requests from City Council and the public.
6. Police Operations & 911 Dispatch Center (Existing project pf2208) $25,000 Funding Source: PEG Fund
Additional funding is required to equip the Police Community room to host virtual meetings – mounted webcams, ceiling microphones, cabling and controller configuration.
The following is a request for a funding source change:
7. Francisco Terrace Flood Wall (Existing project sd2201) ($120,000) Original Funding Source: American Rescue Plan Act (ARPA) funds New funding Source: General Fund
This project will create flood protection improvements in the vicinity of Terrace Drive.
The project was originally approved to be funded by ARPA funds as part of the FY2021- 22 Capital Improvement Plan. Since then, developments in the guidelines and recommendations on how best to efficiently utilize ARPA funds has led to a recommendation to fund this project from an alternative source (General Fund).
F. AMERICAN RESCUE PLAN ACT (ARPA)
In June 2022, the City received the second half tranche of its $12.3 million American Rescue Plan Act (ARPA) financial award. The first half was received in June 2021. Table 3 below shows the progress of allocation of these funds to various projects and purposes:
Table 3: ARPA Funded Project Summary
The table above shows that, to date, $8.16 million of ARPA funds has been appropriated. The cell highlighted in yellow is the request for the mid-year review – as explained in section E – CIP, this is a request to remove this project from direct ARPA funding and to replace it with a less restrictive funding source.
Projects
Total
Appropriations
to date
Mid-Year
Request
Net
Appropriations
after Mid-Year
Expenditures to
date
Unappropriated
Funds
General Government Services 4,530,000 4,530,000 2,560,000 Guaranteed Income Program 1,000,000 1,000,000 1,000,000 1,500,000 Broadband Expansion - Westborough Neighborhood (CIP) 1,000,000 1,000,000 10,391 Public Wifi Expansion (CIP) 150,400 150,400 -
The Spit/Oyster Point Sea Level Rise Protection (CIP) 1,000,000 1,000,000 111,238 Francisco Terrace Flood Protection (CIP) 120,000 (120,000) - - SAMCEDA Restaurant Grants 260,000 260,000 260,000
Jobs for Youth Program (summer 2021) 36,495 36,495 36,495 Shop Local Gift Cards 64,503 64,503 64,503
Other - 2,738,602
TOTAL 8,161,398 (120,000) 8,041,398 4,042,627 4,238,602 City of South San Francisco Page 10 of 12
II. RESERVES OVERVIEW & CONSIDERATIONS
In FY 2021-22, General Fund revenues, excluding Measure W, were $125.5 million. In keeping with the City’s Reserve Policy of maintaining 20 percent of operating revenues which follows the Government Finance Officers Association’s (GFOA) best practice, the City’s General Fund reserves levels were increased by approximately $3.2 million, from $21.9 million to $25.1 million.
This General Reserve amount does not change during the fiscal year. The Pension Stabilization Reserve was established by Council and does not change unless further action is taken. It remains invested and managed by the City’s third-party investment manager.
After meeting the reserves requirement noted above, Table 4 below shows a summary of the City’s official reserves at June 30, 2022:
Table 4: City Reserves Summary as of 6-30-2022
General Reserves $25,100,000
Pension Stabilization Reserves $5,545,000
Infrastructure Reserves $18,033,000
Total Reserve Levels $48,678,000
Available Unassigned GF Fund Balance 12,327,000
Reserves & Surplus Fund Balance $61,005,000
Table 5 below shows a breakdown of FY2022-23 Infrastructure Reserve appropriations to date as well as inflows of revenues. It also includes additional mid-year requests, detailed in previous sections of this report:
Table 5: FY2022-23 Infrastructure Reserve Activities & Balance Item Amount
FY2021-22 Balance $18,033,000
Add: Developer Contributions 434,000
$18,467,000
Less: YTD Appropriation
Incentive Pay $1,142,400
Façade and Tenant Improvement Program $825,000
Transfer out to Stormwater CIP $1,550,000
FY2022-23 CIP project funding $6,490,000
Total appropriation $10,007,400
Mid-year Requests $769,000
Net IR activities after Mid-year $10,342,400
Available Reserve Balance after Mid-Year $7,690,826
The current City’s Financial Enterprise Resource Platform (ERP) system is approaching its endof-life cycle in 2027. However, the City has yet to set aside money to replace the aging ERP City of South San Francisco Page 11 of 12
system. Staff recommends the City set aside $6 million from its unassigned fund balance for the new ERP system and implementation. Staff strongly recommends that any appropriations from the unassigned fund balance be limited to one-time projects, versus funding ongoing needs such as increasing staff or continuing operating costs.
Table 6 below shows the unassigned fund balance and the impact of the General Fund budget for FY2022-23, the effect of year-to-date budget amendments already approved by Council, the midyear appropriations requests and revenue updates detailed in this report and the effect of setting aside an additional $6 million for the ERP replacement. The recommended revenue and expenditure budget updates are projected to result in a surplus of approximately $6 million so the allocation of this amount to the ERP project would leave the unassigned fund balance largely unchanged, as can be seen below.
Table 6: General Fund Unassigned Fund Balance Summary
FY2021-22 Year-end GF Unassigned FB $12,327,000
Committed Reserve – POs & CIP $10,883,022
Subtotal $23,210,022
Adopted Budget Surplus $55,411
- FY2022-23 Net Budget Adjustments ($12,513,050)
+ Mid-Year Revenue Adjustments $10,435,400
- Mid-Year Appropriation Requests ($2,956,000)
Total Adjustments ($4,978,238)
FY2022-23 Projected GF Unassigned FB $18,231,784
ERP Replacement set-aside ($6,000,000)
Net FY2022-23 Projected GF Unassigned FB $12,231,784
Conclusion
The City of South San Francisco has proven its resilience during the COVID-19 pandemic and in its recovery from it. Revenue streams have rebounded strongly, particularly in the Transient Occupancy Tax (TOT) category, as was seen in the FY2021-22 year-end results. This has continued to date in FY 2022-23 in TOT revenue, property tax, sales tax and other categories, beyond initial adopted budget expectations, while some other categories are coming in slightly short of expectations. As a result, staff consider it necessary to make the adjustments detailed in this report.
It is important to acknowledge, however, that the City does have a little way to go to return fully to pre-pandemic levels in some revenue categories. Furthermore, there is some risk of economic volatility in the near-term so staff remain cautiously optimistic and believe some revenue streams may level off somewhat from the current continued upward trajectory, particularly in TOT and sales tax, should economic headwinds occur. In addition, as revenues increase, there is often a City of South San Francisco Page 12 of 12
commensurate increase in expenditures but it is important to ensure that these grow in a controlled and coordinated fashion.
The City has strong financial reserves, as well as unassigned fund balance available in the General Fund which can be used for one-time projects, such as the recommended ERP replacement. It is a staff’s assessment that the City remains in a state of vigorous financial health.
Staff recommends that the Budget Standing Committee accept the FY 22-23 Mid-year financial update and budget amendment requests, and refer this report to the February 22, 2023 Council meeting for full Council acceptance.